As a child growing up in Huntsville, Alabama in the 1980s, I was surrounded by a number of friends whose parents were involved with the space program. Ever since, I have maintained a childlike wonder toward the shuttle program. However, I recently learned something about those early missions that offered a powerful analogy to some of my work in the world of behavioral finance.

At the time of the first shuttle missions, scientists in the program were facing a challenge. They were having trouble getting the shuttle off the ground because it was about 600 pounds too heavy. So, the NASA rocket scientists did what incredibly smart people do best—they tried to come up with a complicated solution to a pesky problem.

They experimented with space-age polymers and tried different forms of material, but none of these solutions could cut the appropriate amount of weight. Then—as the story goes—a line worker walked by one day and saw these scientists in the process of scratching their heads on how to reduce the weight. He stopped and asked why they didn’t just stop painting the fuel tank white. As it turned out, the paint weighed exactly 600 pounds. Hence why today we no longer see a gleaming white fuel tank on NASA’s shuttles. They solved the issue by simply not painting the tank, and instead began leaving it the familiar orange hue most of us know today.

The lesson here is this: a simple solution can often solve for what complexity cannot. For me, this insight served as a compelling metaphor for some of the problems advisors and their clients face every day. Though well intended, advisors can often engineer overly complicated solutions for our clients’ woes that, in reality, require a much simpler and direct approach.

The Investment Problem Vs. The Investor Problem
When it comes to the advisor-client relationship, we have largely solved the problem as it relates to managing investments. Looking back at the past 50 years, evidence suggests that we have figured out how to create funds and indices that maintain a consistent growth trajectory over time, serving as a largely reliable avenue for clients to realize profits with each passing year.

However, studies also show that investors are not capturing the full extent of the possible value of their investments—not by a long shot. A lot of investors get caught up in short-term approaches, like trying to time the market or chase after recent gains. This often points to a gap in their understanding, or a lack of discipline needed to benefit from what the market can offer over extended periods. Ultimately, they end up reacting to immediate market shifts, which reduces their potential for higher returns over time. For example, recent Morningstar research shows that over the past decade, investors in mutual funds and ETFs earned an average of 6.04% annually, which is 1.67 percentage points lower than the total returns of the funds themselves (7.71 percent). This gap in performance is especially pronounced in sector funds and nontraditional equity funds, where investors' attempts to time the market can lead to reduced average returns.

As founding Orion CEO Eric Clarke once said to me, though the investment problem has been solved, the investor problem still needs a lot of work. We need to figure out how to keep investors in their seats and address the behavior gap that leads to much lower returns than is possible. If we refer to our shuttle program example, the complex solutions that solved the investment problem may not be the most suitable approach for addressing the investor problem. For that, we need to revisit the basics of being human and what makes us tick.

The Case For Behavioral Finance
In 2016, Merrill Lynch completed a meta-analysis of several prominent studies related to the value delivered by various aspects of an advisor's daily work. The study looked at everything that comprises an advisor's day in the office and sought to find out which tasks were the biggest drivers of financial returns and improvements to a client’s life.

The good news is that more or less everything an advisor does adds value. From tax management to behavioral coaching, everything is prudent and additive to the lives of those who have entrusted their advisor with their financial (and personal) well-being. Notably, however, functions that touch on behavioral finance stand out as exceptionally valuable, with behavioral coaching possessing an average value of 244 basis points (bps). In comparison, a traditional task like asset allocation typically yields around 35 bps. Of the four areas tested (behavioral coaching, client assessment, goal optimization, and saving and withdrawal guidance), it's worth highlighting that even the least valuable behavioral function surpasses the most valuable “old school” advisor tactics, which include asset allocation, tax management, product allocation and portfolio rebalancing.

This drives home the idea that for advisors to serve their clients appropriately and to the best of their abilities, they need tools that allow them to better understand their clients’ needs as humans—not just as investors.

BeFi20: Bridging The Gap Between Financial Values And Personal Relationships
It was the desire to solve this problem that inspired the creation of Orion’s BeFi20 tool. This 20-question assessment allows advisors to better understand the financial values of individuals and couples, ultimately enabling them to offer more effective support from a behavioral perspective. In recent decades, money and relationships have topped the list of major stressors for Americans. Given that, if we are going to solve the investor problem and the behavior gap, then we need to look closely at these two factors and how they are influencing our clients’ lives. Rather than asking couples to define their financial values (given that self-awareness may vary), we surveyed hundreds of couples across North America and asked them to identify the primary sources of disagreement when they fight about money with their partner.

Through this research, we uncovered some shocking statistics. Just over a third of millennials fight about money weekly, 63% of people believe their partner overspends, and 12% of couples have never had a single conversation about money. This data (and more) led us to realize advisors needed a tool to talk to couples about money and their relationships, without overcomplicating or confusing the issue further for them. Ultimately, we arrived at five foundational pillars driving conflict in relationships: communication, worry, function, orientation and importance.

Each of these five pillars exists on a spectrum, with couples falling somewhere along the continuum. Let’s take the function pillar for example. On one end of the spectrum, we have those who believe money’s primary function is pragmatic—to be saved for retirement or used to meet practical needs. On the other side of the equation are the people who prioritize using money for immediate gratification and seizing the moment. When couples find themselves at opposite ends of the spectrum, the BeFi20 tool comes into play. It not only helps advisors gain a deeper understanding of how couples perceive the function of money but also equips them to provide tailored advice that facilitates compromise and helps the two partners to meet in the middle.

With assessments like the BeFi20, advisors are equipped with a tool that has the power to help everybody, no matter their level of understanding, when it comes to the complexities of their finances and portfolios. Though everyone might not be interested in the mathematical science used to construct their portfolio, everyone is interested in understanding themselves, their behavior and their relationships better.

By identifying the most noteworthy sources of financial distress among Americans and leveraging assessment tools and other behavioral finance tools that speak to those driving factors, advisors can rest assured they are bringing immense, tangible value into their clients’ lives. Because solving the investor problem for clients might be as simple as stripping back the paint to uncover the solution that lies beneath.

Dr. Daniel Crosby is chief behavioral officer at Orion Advisor Solutions.